5 Based on the wage settingprice setting model we know that

5. Based on the wage setting-price setting model, we know that passing a new law that bans the formation of labor unions will cause: a. b. c. d. e. a reduction in the equilibrium real wage an increase in the equilibrium real wage. no change in the equilibrium real wage. an increase in the natural rate of unemployment a reduction in the natural level of output

Solution

The main function of the labor unions is that they get to act as labour cartels and they restrict the number of workers in a company or an industry and this rises the wages of other workers. If a new law is formed that bans the formation of unions, more workers will come in and this reduces the equilibrium wages all in all.

Therefor option(a) is the answer